In This Pit, Traders Await `Freight Train'

Quiet in the Chicago Board of Trade's financial pits usually means nothing is happening in the markets.

But Tuesday, the quiet signaled pure anxiety as traders waited for the Federal Reserve to announce its interest rate move.

Voices cried out the time, counting down as the much anticipated afternoon announcement drew closer.

Someone near the 10-year Treasury note pit incessantly whistled the theme song to "Jeopardy."

Trader James Hensel captured the feeling behind the seeming calm: "It's like standing on railroad tracks with a freight train coming. You hope it stops right at the end of your toes. But if you're wrong, it rolls over you."

Hensel trades futures on the federal funds rate, the same rate the Fed adjusts when it loosens or tightens the flow of money into the U.S. economy.

That small Board of Trade pit typically goes wild when the Fed changes rates, because its 35 traders and their customers usually try to adjust their positions in line with Fed actions right away. Trading volume in the 10 minutes following a Fed rate move typically equals the dollar volume of an entire day's volume when the Fed is quiet.

On Tuesday, the atmosphere was particularly tense because investors were divided almost evenly in their bets on how much the Fed would lower rates. Some predicted a decrease of 50 basis points in the fed funds rate--from 5.5 percent to 5.0 percent--which turned out to be right. Others expected a cut of 75 basis points.

"It's split right down the center," Paul Wilkinson, senior vice president at the Chicago-based brokerage Carr Futures, said before the announcement. He handles financial futures positions for institutional clients.

However, the camps were close enough that Wilkinson did not see clients taking "the extreme positions that cause people to react quickly to either case," he said.

Hensel became nervous enough about his own trading position that he dumped it before the Fed action, and made his money amid the volatility that followed the rate move.

Other traders liquidated their positions, and some made new bets in the minutes leading up to the announcement.

"All righty, seven minutes, boys!" called out trader John Voe, laughing as he did his part to "get the edge up" in the federal funds pit.

This time, the announcement came a few minutes early, catching everyone by surprise.

Many traders were not even watching the massive TV screen or the electronic boards when the news came at 1:13 p.m.

Voe heard about it when a brief silence was broken by a voice screaming that the move was 50 basis points.

Immediately, the trading floor erupted. The federal funds pit became like a disturbed anthill as traders pushed each other and waved their arms attempting to be seen and heard.

Some traders bellowed louder than their colleagues. Others jumped straight up and down like excited children trying to be seen. One fed funds trader climbed onto a railing to move a head higher than his peers.

In the 47 minutes of trading between the Fed's announcement and the closing bell, the other Board of Trade pits regained their relative quiet of earlier in the day. But in the federal funds pit, the screaming continued, until finally cut off by the 2 p.m. bell.